Ticker Tape's Medical Picks

10/23/2002 12:00 am EST

Focus:

Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Leo Fasciocco (Ticker Tape Digest) seeks out stocks that are under accumulation and on the verge of breaking out to new highs. His strategy is to buy an initial position as the stock breaks out of a base of accumulation, and then add to positions on continued strength.  Two recent such plays are in the healthcare field.  Here are his reviews.

Health Management Associates (HMA NYSE), based in Naples, Florida, operates 40 hospitals and two psychiatric centers. Annual revenues are $1.9 billion. HMA specializes in acquiring and upgrading rural hospitals and equipment in order to attract business from patients who would previously have been forced to travel to receive treatment. Earnings are growing nicely as the company benefits from internal growth and acquisitions. It seeks to grow at a 15% clip, and is doing better than that. This year, we are forecasting a 25% increase in net for the fiscal year ending Sept. 30. We see net coming in at 97 cents a share, up from 78 cents a year ago. Going out to fiscal 2003, we anticipate a 17% improvement in profits to $1.13 a share.

“Technically, the stock has been in a solid up-trend since turning higher after making a trough at 16.50 in July. Most recently HMA pushed through key resistance at 20.50 and is now moving higher. It is not extended and still within accumulation range. HMA is a solid play that is on a steady course of improving earnings. We see the stock at a point to be accumulated as a partial position. Further buying should be done by averaging up in price. We are targeting a move to 30 within six months. A protective stop can be placed near 20.40. We rate the stock a good intermediate-term play with low downside risk.

"Cardinal Health (CAH NYSE) is the largest US distributor of pharmaceuticals and other medical supplies and equipment. Annual revenues are $51 billion. CAH is the picture of consistent earnings growth. Its key unit pharmaceutical distribution should grow sales by 14% to 17% this year. The group is benefiting from strong drug sales fueled by an aging population and expansion of the specialty distribution channel. Net for the third quarter should climb 20% to 66 cents a share from 55 cents a year ago. For the fiscal year ending June 30, we expect a 21% increase in net to $3.18 a share from $2.63 a year ago. We see good prospects of 20% growth in the following year. The stock’s price-earnings ratio is 21 - making it reasonably priced.

"Technically, the stock rallied recently from 48 in July to 68. Since then it has been in an eight-week base with upside resistance at 68. The stock, showing strong accumulation now, is poised to breakout at any time. Importantly, there was heavy accumulation when the stock shook out down to 62 in late September. CAH has upside resistance in the 70s. We expect the stock to push into that area. A key breakthrough would be a move through 76. We suggest a partial position now, with the completion of buying to be done on a breakout over 68. We are targeting CAH for a move to 80 to 84 within six months. A protective stop can be placed near 62.50. We rate CAH a good intermediate-term play suitable for conservative investors."

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